Nonsmoking is killing tax revenue

Pennsylvanians are buying fewer cigarettes, according to state sales tax collections.

MELISSA DANIELS

Pennsylvanians are buying fewer cigarettes, according to state sales tax collections.

While that may be good news on the health front, a recent decline in cigarette tax collection means a bigger-than-expected revenue gap as the commonwealth scrutinizes a tight budget.

Matthew Knittel, executive director of the state's Independent Fiscal Office, said that cigarette taxes are down about twice as much as the office expected.

Revenues from cigarette taxes for the fiscal year to date are down 4.6 percent from last year. This surprised the IFO, Knittel said, which projected closer to a 2 percent decrease.

"That's ordinarily due to cutbacks in smoking rates, and it's a bit stronger than we would have expected," Knittel said.

The state's collected about $837 million in cigarette tax revenue this year, compared to $878 million last year.

Looking ahead, the cigarette tax may continue to be a less reliable revenue stream. IFO estimates a 4.5 percent decline to $1.02 billion by the end of the current fiscal year.

By the end of the 2013-14 fiscal year, the IFO projects collections at $993 million.

Pennsylvania's cigarette tax is $1.60 per pack, after it was increased by 25 cents in 2009. The national average, as of the start of 2013, is $1.36.

The IFO was "a bit perplexed" by the larger-than-expected decline, Knittel said. Recent popularity of electronic cigarettes or roll-your-own tobacco shops may play a role, as neither product is part of the cigarette sales tax structure. But there's no way to know for sure, Knittel said.

"It's nearly impossible to pin it down, because there's no public data on that," he said.

Some lawmakers are proposing new taxes on tobacco products other than cigarettes, which could potentially fill in the gap. The goals of such taxes often center on public health, or bringing Pennsylvania's tax structure in line with other states.

Rep. Ed Gainey, D-Allegheny, introduced legislation this year to tax smokeless tobacco and cigars. He estimates the tax would bring about $44.3 million in revenue, which would be directed towards transportation infrastructure and mass transit.

"Just about everywhere in the United States people pay a state excise tax when they buy cigars, chewing tobacco, snuff, or loose tobacco," Gainey said in a co-sponsorship memo to other lawmakers. "Pennsylvania is one of only two states (the other is Florida) to exempt cigars from taxation and is the only state not to tax the other forms of tobacco."